Mr. President, Here’s that Balanced Approach You Keep Demanding

At his press conference today, President Obama repeatedly said that a “balanced approach” is needed to deal with the fiscal situation.

The White House has obviously poll-tested and focus-grouped that phrase. But just because it’s gimmicky, that doesn’t mean balance is a bad idea. So I’ve decided to take the President’s challenge.

I want to know why America’s fiscal situation is so out of whack. I’m willing to take a dispassionate look at the numbers. And if those figures show that the President is right, and that “unaffordable tax cuts” have caused higher deficits, then I’m willing to support higher revenues (after all, I am a pragmatic, middle-of-the-road guy).

Those numbers show that federal spending, on average, consumed 19.8 percent of GDP from 1950-2000.

Tax revenues, by contrast, have consumed an average of 18 percent of GDP.

If my math is correct, that means deficits averaged almost 2 percent of GDP over that period.

To determine why deficits are higher today than that long-run average, I decided to look at what spending and revenues will be over the next 5-10 years. I could have picked this year, but that seemed unfair since the economy is still weak, which causes abnormally high spending and unusually low revenue.

Moreover, the spending figures would be artificially high because of wars that we are told are soon coming to an end.

Additionally, everyone is talking about 10-year plans, not fixing the problem overnight, so looking at the 5-10 year figures makes sense.

And, to expose any smoke-and-mirrors by the GOP, I also will assume the 2001 and 2003 tax cuts are made permanent. That way, we’ll know the degree to which Bush’s tax cuts are responsible for additional red ink.

I discovered that tax revenues between 2016 and 2021 will average about 18.2 percent of GDP. And that’s assuming, as just noted, the 2001 and 2003 tax cuts are made permanent.

I also found that the burden of federal spending will average about 23.6 percent of GDP during that same period.

So let’s see what we should do if we want to satisfy the President’s demand for a balanced approach…hmm…

Tax revenues will be 18.2 percent of GDP, slightly higher than their historical average of 18.0 percent of economic output. So we can safely conclude that revenues in general (and “unaffordable tax cuts” in particular) are not responsible for higher levels of red ink.

Now let’s look at the outlay side of the fiscal ledger. Federal spending is projected to consume about 23.6 percent of GDP, substantially higher than the long-run average of 19.8 percent of economic output.

In other words, if we want to assign blame for higher deficits, the increase in federal spending deserves more than 100 percent of that blame.

Which implies, if we want to be balanced, that spending restraint should be more than 100 percent of the solution.

Here’s a chart based on those OMB and CBO numbers.

By the way, lest anyone think that I cherry picked historical data, I deliberately decided not to use 1946-2010 data, which would have made my point even stronger. Over that longer period of time, revenues average 17.7 percent of GDP and spending averaged 19.7 percent of GDP.

However you slice the numbers, America’s fiscal policy problem is too much spending. The solution, as I explain here, is to limit the growth of the federal budget.

Mr. Mitchell, I honestly believe that Congress and the Administration are holding a gun to our collective head with this National debt default threat. I don’t understand why Americans are putting up with this blatant extortion attempt from both political parties apparently acting in collusion. What is your view on this please?

I would notch down the Brilliant to substantial – not included in this gloss of the CGO numbers are the Independant numbers from GAO – a separate entity not issuing forth from the White House and therefore, more objective in their %. Also, why NOT use the 2000-2010 – and also include the status of the economic plight on the 10 million unemployed. Let us hope some of them (us) get employed soon, before we have to move out of country for the first time in 200 years.

And a difference of 2 % points is not that significant to lay this at Obama’s feet, if you ONLY use the figures from 2000-2008, what does Bush’s tenure look like ? Not so good AND I am a Republican :(

Why is the percentage of federal spending to GDP going UP from 19.8 to 23.6? Do we REALLY need that much more government? To use a popular phrase, I contend that more government is not the solution our problem, more government IS the problem.

I also would like to know what these numbers would look like if the Bush tax breaks were ended? Would it really make up the shortfall? I doubt it. Should we then soak the rich even more than they already are? (When was the last time you got a job from a poor guy? How did THAT work out for ya?) Should we pile more taxes on to the oil companies, corporate jet owners and the like? Would THAT make up the difference? Does anyone really, truly believe that any person or business, would simply “eat” a tax increase? No, they would pass it along to the consumer, it would all trickle down to the “little guy” shouldering the burden of any tax increase imposed.

Around 1998 – 1999 we had a balanced budget and a surplus paying down the debt. Then wtf happened when the fiscal responsible people were in charge? And now, everyone is against spending money to fix the infrastructure and creating jobs, and ……… We need jobs. 1998 – 1999 taxes were a little higher and everyone had a job. In the 2000s, we had two ‘job creating’ tax cuts, and now no one can find a job.

@ Pablo – I think the problem with federal spending increases going up by 3.8% of GDP isn’t literally an increase in the “size” of government. Most likely the lion’s share comes from entitlement programs which, even if kept flat, are going to an increasing percentage of the population. This is why I believe the “no brainer” first step must be to increase the SS retirement age.

I believe that the problem is primarily the voters, not the politicians. Aren’t the politicians just providing what the majority of voters want: something for nothing?

Presently, the majority of voters do not have the integrity nor wisdom to choose competent politicians.

The Founders feared mob-rule democracy. Their solution was to limit voting rights to certain groups. Unfortunately, such solutions cannot even be publicly discussed today, much less implemented.

Until voting is restricted to those with adequate wisdom and integrity, the decline will continue. When collapse occurs, the voters will probably surrender their freedoms to a dictator. I hope it’s not a Stalin or Mao…

The politicians are already treating us like they know what’s best for us, despite our voting booth “mandates”. Unfortunately, the old adage holds: Absolute power corrupts absolutely. The more power and influence we allow them to have over our lives, the more they are going to take.

I forget who said it but, The more the government provides, the more it can take away. With more and more people in this country getting something for nothing from our government, how do you think they are going to vote? Are they going to vote for what’s best for all of us in the long run, or are they going to vote for the hand that feeds them? Too bad so many don’t realize they are being bribed with their own money.

I agree…the enormous spending during the 2000-2008 years were atrocious. I mean how does a country go from being in the black with a surplus to becoming a near cataclysmic sabotaging free-falling economy that nearly took the world with it?

AJ—How do you explain that from 2009 to present our current rulers, er… leaders, doubling down, greasing the rails and juicing up the express train to hell to “Ludicrous Speed”? In the first 2 years, during the Obama/Reid/Pelosi regime, deficit spending increased by more than all 8 years of the Bush administration COMBINED. Now this administration wants MORE, in spite of, as the article states: “…wars that we are told are soon coming to an end.”??? If we’re not spending so much on these wars, how do you justify the extra spending? Many people, and I’ll assume yourself included, have railed for years that these wars were too expensive. Now you don’t have that excuse anymore. Your guy is spending even more $$$. Now what?

As Jonathon states, even if we kept the entitlement programs flat, they would still slowly consume us. But I don’t think that’s where all the extra spending is coming from.

As long as people keep denying that they’re being bribed with their own money, we’re doomed.

What would REALLY happen if (hopefully) they DON’T increase the debt ceiling? Will the government shut down? (Oh, happy DAY!) Will it REALLY be the end of the world, or will the American people finally wake up to the idea that we never really needed so much government in our lives in the first place?

I don’t think this is caused by citizens lacking integrity or self control. I think it is caused by people making decisions and the repercussions are too far removed and/or diluted by the forced insurance policy that is government itself.

[…] of GDP would reach 19.8 percent by 2022 under Ryan’s proposal. That is in line with the historical average from 1950-2000. Federal spending under Obama’s plan would rise to 22.8 percent of GDP over the same […]

[…] Federal spending as a percentage of gross domestic product (GDP) under Obama is projected to reach 22.8 percent over the next decade, a full three points higher than the historical average since World War II. […]

[…] Federal spending as a percentage of gross domestic product (GDP) under Obama is projected to reach 22.8 percent over the next decade, a full three points higher than the historical average since World War II. […]

[…] I actually agree with Obama – but only if one uses honest math. Needless to say, Obama wants to use Washington math, where spending increases get redefined as spending cuts if the burden of government spending doesn’t rise as fast as was projected in some artificial baseline. […]